TY - JOUR
AU - Bernheim,B. Douglas
TI - Life Cycle Annuity Valuation
JF - National Bureau of Economic Research Working Paper Series
VL - No. 1511
PY - 1984
Y2 - December 1984
DO - 10.3386/w1511
UR - http://www.nber.org/papers/w1511
L1 - http://www.nber.org/papers/w1511.pdf
N1 - Author contact info:
B. Douglas Bernheim
Department of Economics
Stanford University
Stanford, CA 94305-6072
Tel: 650/725-8732
Fax: 650/725-5702
E-Mail: bernheim@stanford.edu
AB - In this paper, we argue that actuarial valuation of annuity benefit streams is theoretically inconsistent with the assumption of pure lifecycle motives. Instead, we show that the simple discounted value of future benefits (ignoring the possibility of death) is often a good approximation to the relevant concept of value. This observation motivates a re-examination of existing empirical evidence concerning the effects of Social Security on personal savings, retirement, and the distribution of wealth, as well as the proper computation of age-wealth profiles. The conceptual points raised here are also relevant for evaluating the relative merits of wage and consumption taxes. In each case,we argue that the use of simple, rather than actuarial discounting of survival-contingent income streams dramatically alters the conclusions of previous studies.
ER -